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The April 18 order could prevent Gibson Dunn from defending a malpractice lawsuit
that accuses McDermott Will &
Emery LLP and one of its former partners of helping the grandson of a pharmaceutical
baron wrest control of his family’s $50 million holding company from his father and
siblings.

Voting 2-1, the panel said Gibson Dunn acted unethically when it reviewed and refused
to return an e-mail message that one of the plaintiffs, Dick Hausman, received from
a lawyer who gave him advice about the family dispute before it erupted into litigation.

The e-mail wound up in McDermott’s files because Hausman, who was nearly 80 years
old when he received the message, inadvertently sent it to another relative who then
forwarded it to a McDermott partner who handled the family’s estate planning and allegedly
helped Hausman’s son seize control of the family company.

A trial judge said Gibson Dunn violated ethics rules when it used that e-mail to assist
its subsequent defense of McDermott in this malpractice case. The appeals court agreed.

Avert Your Eyes

Aronson said Gibson Dunn violated its duties under
State Fund because the e-mail it exploited “clearly appear[ed] to be privileged,” and because
it was “reasonably apparent the materials were inadvertently disclosed.”

“In that situation, the attorney receiving the materials must refrain from examining
them any more than is necessary to determine their privileged nature, immediately
notify the privilege holder the attorney has received materials that appear to be
privileged, attempt to reach an agreement with the privilege holder about the materials’
privileged nature and their appropriate use, and resort to the court for guidance
if an agreement cannot be reached,”
Aronson wrote. “The attorney must not further review or use the materials for any
purpose while the issue remains in dispute.”

Gibson Dunn didn’t follow those protocols, and Aronson—joined by Justice Kathleen
E. O’Leary—said the firm was properly disqualified as a result.

“Gibson Dunn’s continued representation of [McDermott] could trigger doubts about
the integrity of the judicial process because whenever Gibson Dunn’s advocacy touched
on the
[events discussed in the] e-mail, questions inevitably would surface about the source
of Gibson Dunn’s knowledge,” the majority opinion said.

Dissent: Opening Pandora’s Box

Aronson rejected McDermott’s argument that the
State Fund rule should only apply “to privileged materials an attorney receives through
the inadvertence of opposing counsel during litigation.”

“Although the
State Fund rule originated in the context of one attorney inadvertently producing his client’s
privileged documents to the opponent’s attorney during litigation, neither the statement
of the rule nor the policy underlying it supports limiting the scope of the rule to
that one circumstance,” Aronson wrote.

Justice David A. Thompson was more receptive to McDermott’s arguments for limiting
State Fund.

In a lengthy dissent, Thompson said the State Fund rule was designed to encourage
candor between clients and lawyers by assuaging the concerns of clients who might
be “fearful that an inadvertent error by its counsel could result in the waiver of
privileged information.”

“But none of these policy concerns are implicated here because the arguably inadvertent
disclosure was made by the client, Dick, not his lawyer,” Thompson wrote. “Client
error poses no risk of disincentive to full candor by a client with his or her lawyer
out of fear that an inadvertent error by the lawyer could result in the waiver of
privileged information.”

Quoting case law, Thompson said the State Fund rule prevents “a ‘gotcha’ theory of
waiver, in which an [lawyer’s] slip-up in a document production becomes the equivalent
of actual consent [to waive privilege].”

“But extending the
State Fund rule to the unusual situation here results in a reverse gotcha which could ‘nullify
a party’s right to representation by chosen counsel any time inadvertence or devious
design put an adversary’s confidences in any attorney’s mailbox,’” Thompson added.

Thompson also said that the majority’s novel interpretation of
State Fund militated against disqualification.

“[U]ntil today, no court has ever applied the
State Fund rule in any case which bears any material resemblance to this case,” Thompson wrote.
This was “an unusual privilege dispute” and “Gibson Dunn’s conduct was objectively
reasonable,” he added. “That this court has now greatly expanded the
State Fund rule to condemn Gibson Dunn’s conduct is not a proper basis for disqualification.”

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